No People can be bound to acknowledge and adore the invisible hand, which conducts the Affairs of men more than the People of the United States.
-- George Washington

Friday, October 16, 2009

Utah's Medicaid Has Major Issues

In August Utah's Legislative Auditor General released the findings of its audit of the state's Medicaid program. What it found was a program which spends $1.7 billion a year, but has almost no oversight of where it's going.

Reading through the 100 page report, I was struck by the systemic failure exhibited by Medicaid. There is an appalling lack of oversight in basically every area the auditors looked at. From prior authorizations, to provider screening and enrollment, to fraud recovery, and internal policing - it all failed miserably. Each of these areas are critical points in keeping costs down and avoiding fraud and waste, yet the guidelines are either non-existent or so lazily enforced as to be worth less than the paper they're printed on.

For clarification, Medicaid is health insurance for low income people administered by the state of Utah, but funded with both state and federal money. Utah kicks in about $500 million of the total $1.7 billion spent.

There were a couple of things in the audit that stuck out at me. First is that 95% of that $1.7 billion is not reviewed for fraud at all. Organizationally, Medicaid is set up to ignore whether those payments to dentists, doctors, and hospitals are legit or not. There could be double billing, useless tests or exams, or out and out fraud, an no one will ever find out. Which in itself is concerning, but then it's coupled with the fact that Medicaid doesn't review its providers (the doctors, dentists, and hospitals) either. Anyone who wants to be a part of the Medicaid program is accepted, even if they have a history of fraud. So we accept any possible fraudster out there, and then we don't monitor their billings at all. Sounds like a recipe for disaster to me.

And disaster might be what we're getting. The auditors cite a national study which says that on average the low end of fraudulent cases is 3% of total billings. The auditors stress this is a conservative estimate. Well, Utah Medicaid finds and gets money back on about 1.7% of its total spending. But even that low number is misleading because most of that returned money comes not through our efforts, but because private insurance companies find out that Medicaid had paid for a service that was actually the private company's responsibility, and instead of pocketing the savings they fix the problem and pay for it themselves. So Medicaid on its own actually only finds and recovers a fraction of 1% of fraud. Again, this speaks to the total lack of oversight and due diligence by the program.

The most glaring deficiency in the audit is that, again because of poor guidelines and organization, Medicaid itself is never audited. There are no independent internal audits being conducted to ensure everything is on the up and up. So not only does Medicaid not audit providers or look for fraud, but no one is auditing Medicaid either.

The reason all of this is important really comes into focus through a specific, real life example written of in the audit. A provider bills medicaid for $370,000. Medicaid has to determine if the services were actually necessary before they pay for them, so they request medical history documentation. The requested documents never come, so Medicaid doesn't pay. The provider starts an appeal process so they can get their money, but even then they file the appeal late and still don't send the medical documents. Finally, they drop the appeal and go straight to the Medicaid director. Up to this point everything has been handled ok, despite the persistent lateness of the provider. Even going to the director is somewhat supported by written guidelines. At this point the director should have gotten the medical documents, reviewed them, and then made a decision. Instead, he unilaterally gave the provider $370,000 without even reviewing the case. Only after the auditors found this example two years later did Medicaid finally get the appropriate documentation. Medicaid's director's reason for handing over $370,000 without even reviewing the case? He said sometimes that's necessary in order to "maintain relationships with providers."

I can imagine the stress this audit must have created for everyone in the Medicaid office. As a controller of a large company, I get audited every year, and it's a stressful time. I have to justify every decision I've made over the course of the year, and provide documentation as part of the justification. If you're organized and prepared, audits can be relatively simple. If not, they can be a major source of heartburn.

This report is possibly the worst conceivable outcome of the audit. The only way it could have been worse is if the auditors caught Medicaid management stealing funds. The audit shows medicaid fits the stereotype of an inefficient, poorly managed, wasteful government program.

To a great degree the problems of Medicaid stem from the fact that it is a service for poor people. In general, that means that the recipients of the service are unable or unwilling to complain loudly about how its run and that administrators can be pretty sure that the legislators won't be hearing horror stories from their clients.

The delivery of health care in this country is a profit-making business. If you are in that business, it is important for you to maximize income, so overcharging and (if you think you can get away with it) double-charging is good for your bottom line. For decades, medical providers have been inflating charges because they simply did not know how much any given insurer would pay. If you don't know whether you will get $1000 or $1500 for a procedure, charge $3000 and see what you get. That's how you maximize profit.

We could solve all this with a single payer system that paid physicians and hospitals based on the type of population they serve and the quality of their outcomes instead of reimbursing by procedure. Obviously that isn't going to happen while the insurance companies are pouring millions into the pockets of Senators and Congressmen.

The legislature doesn't hear horror stories from Medicaid clients because it's not the clients who were wronged. They're still getting treated. It's that Medicaid, unlike their private counterparts, are incredibly inept at catching waste, fraud and abuse. The people being wronged in this scenario are the taxpayers funding the program.

Also, for profit insurers have contracts with providers wherein it states quite clearly how much will be paid for a given service. That's why we have in network and out of network provider lists. The real cause of price inflation is that Medicaid and Medicare artificially pay extremely low rates for services, which causes providers to raise prices for everyone else.

Cameron, the fraud and abuse are coming from providers. They are able to game the system because the system is paying for procedures not for outcomes. The more times the doctor sees the patient, the more tests they order, the more devices that prescribe, the more money they make.

Reducing costs by penalizing the recipients of care would be wrong - they're not the problem. Why not change the model? Assign each Medicaid recipient a family physician and pay that physician based on the improvement in the health of the patient rather than by the number of procedures they prescribe. Make it worthwhile for the doctor to actually spend with each patient, determining what can be done to improve their health and what barriers exist to that improvement. That would result in a healthier Utah and a cost savings. You can expect the hospitals and drug companies would oppose it though.

Reducing costs by penalizing the recipients of care would be wrong - they're not the problem.

No one is advocating that. What's being stated here is that unlike its private counterparts, Medicaid is really crummy at finding waste, fraud and abuse.

As for your model change idea, I don't see the difference. As far as doctors and hospitals using lots of perhaps unnecessary tests and procedures goes, them being paid by "outcomes" won't get rid of a single test. They'll be incented to do everything under the sun in hopes of getting the "correct" outcome - regardless of actual effectiveness.